NSW: Building Defects – What do the Recent NSW Legislative Changes Mean for Owners Corporations, Associations and Lot Owners? Part 1

This article about the recent NSW legislative changes to building defects and what they mean for owners corporations, associations and lot owners has been supplied by Allison Benson, Kerin Benson Lawyers.

The NSW government has responded to the building crisis by passing two key pieces of legislation. These are the Design and Building Practitioners Act 2020 and the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020.

Design and Building Practitioners Act 2020 (D&BP Act)

Part 4 of the D&BP Act came into effect on 11 June 2020 and created a new statutory duty of care.

The duty of care, which is set out at section 37, requires a person who carries out construction work to exercise reasonable care to avoid economic loss caused by defects either in or related to the building for which the work is conducted or arising from the construction work. Construction work is defined at section 36 as being building work or the preparation of regulated designs and other designs for building work, the manufacture or supply of a building product used for building work or supervising, coordinating, project managing or otherwise having “substantive control” over the carrying out of any of this work.

What does this mean?

First, it means that a broader class of people are now potentially liable to the owner of the land and subsequent land owners. This class of people now include architects, engineers, drafts people, site supervisors, project managers, project coordinators, subcontractors and product suppliers and manufacturers. The requirement for a person to exercise a “substantive control” may also make sole sole directors and secretaries of building companies liable (although this will need to be tested). This is a significant expansion and addresses the decision in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36 where the High Court had found that the builder did not owe a duty of care to the owners corporation.

Secondly, it also means that if due to a breach of this duty of care the land owner suffers a financial loss, such as the costs of repair work, then the land owner can make a claim to recover their loss. However, the loss is apportionable. This means that the party making the claim may need to join multiple people to the action, for instance, the engineer may claim that their specifications were suitable but that the builder used the wrong grade of steel and that the project manager contributed to the defects because they ordered the wrong grade of steel and permitted the builder to use it. Essentially, the various parties to the construction work may try to apportion blame to each other to minimise their individual liability.

The duty of care is owed to each owner of the land including subsequent owners of the land. This means that each person who carries out construction work owes the duty of care to both the land owner at the time the work was conducted and to any lot owner, community, precinct or neighbourhood association or owners corporation who takes ownership of the land after the works.

The duty of care is retrospective. However, there is some debate over the length of its retrospectivity. While Schedule 1, clause 5 states that the duty of care operates retrospectively if the loss first became apparent within the ten years immediately before the commencement of section 37 (which would be from 11 June 2010), other sections note that the D&BP Act is limited by the Civil Liability Act 2002 (which is limited by the Limitations Act 1969) and section 6.20 of the Environmental Planning and Assessment Act 1979. This may limit the ability to make a claim to only six years before the commencement of section 37 (which would be from 11 June 2014) even though the duty is owed from 10 June 2010. Damien Tudehope (the Minister for Finance and Small Business) in his Second Reading Speech on 2 June 2020 indicated it was intended that the six year limitation period apply:

‘Consistent with the existing position under the common law, the duty of care will be subject to the limitation period that applies to negligence claims under the Limitation Act 1969. This means that there will be strict time limits to bring a professional negligence claim and that court proceedings need to be commenced within six years from the date on which the damage or loss accrues.’

This apparent conflict will undoubtedly be tested in the courts.

The duty cannot be contracted out of and applies in addition to the statutory warranties found in the Home Building Act 1989.

Aside from extending the range of people who owe a duty of care the D&BP Act has another key implication. Where someone has run out of time to make a claim under the Home Building Act it can provide another option to seek redress. How? The Home Building Act generally requires a claim for major defects to be made within six years of the date of completion of the work and within two years for all other defects while the D&BP Act a claim must be made within six years from when the loss becomes apparent (or for up to ten years after the work has been completed) and there is no distinction between a major and other defect.

While the D&BP Act does not specify the standard of care required it is likely to be similar to a duty of care under negligence and require reference to the National Construction Code.

We await the regulations for further details.

Have a question about what the recent NSW legislative changes to building defects mean for owners corporations, associations and lot owners or something to add to the article? Leave a comment below.

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Allison Benson
Kerin Benson Lawyers
P: 02 4032 7990
E: [email protected]

Please note: This is not intended to be legal advice. You should seek legal advice specific to your situation.

This post appears in Strata News #394.

This article has been republished with permission from the author and first appeared on the Thoughts from a Strata Lawyer website.

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